The idle musings of a former military man, former computer geek, medically retired pastor and now full-time writer. Contents guaranteed to offend the politically correct and anal-retentive from time to time. My approach to life is that it should be taken with a large helping of laughter, and sufficient firepower to keep it tamed!

Wednesday, May 3, 2017

Good advice on buying a home

I was interested to come across an article that examines housing costs and how they can make - or break - your financial future. It's a long article, and well worth reading in full, but here's an excerpt with some salient points. (The authors don't seem to use capital letters at all, which I find irritating, but I guess that's their choice.)

our society does not think of the home one chooses as a simple, functional decision. shelter? check! housing is all tied up in the american dream (or insert your own country of choice), and is too often seen as a reflection of the self you wish to project in the world. no one wants to present a dumpy shack self, after all, but we get caught up in this escalation to keep up with the joneses, or to go beyond a “starter home,” or to live in the best neighborhood. but our advice to you is: separate yourself from that pressure. just as buying a more expensive home would have increased our costs in many ways beyond the purchase price, minimizing your housing costs reduces your costs in a ton of different ways:

less money needed for a down payment

less money needed every month for mortgage payments

less to shell out for closing costs

lower property taxes

lower homeowners insurance premium

and you’ll need to save less for retirement, because you won’t have to save so much to pay your property taxes (and possibly other things like utilities, maintenance and homeowners association fees)

and the result of all of those lower costs is: you can save faster and save less for your financial independence. this is no small thing.

we’ve made plenty of financial mistakes in our time together, and in the years before we met, but keeping our housing costs low, relative to the expensive place we live, is by far the best choice we’ve ever made. here’s how you can make a good choice too:

. . .

buy or rent as little house as you can. we’ve house hunted enough to know that it’s easy to see some houses and think, that bigger house gave us so many options we wouldn’t have in the smaller house. but more square feet generally means a higher price, plus other costs that aren’t always top-of-mind at decision time: more energy to heat and cool a bigger home, more space to clean and maintain, more space to fill with purchased stuff, and more space to renovate if you make improvements. remember: it’s only in the last few decades that we’ve come to believe that we need all this space. historic homes are all much much smaller than homes built today.

buy once. the idea of starting in a “starter home” (a real estate marketing term) and moving up to a bigger and better house is the established pattern, but that doesn’t make it the right one. people on the path to financial independence are used to going a different route, and this should be another case where that’s true. buy one house and stay put, unless you plan to downsize or move somewhere cheaper!

don’t let the banks set your budget. this is probably the biggest one. it’s easy to go online, find a loan calculator, and quickly get an estimate of how much house you can “afford.” and while you may be able to buy that much house without going into financial ruin, that doesn’t mean that’s what you should pay for a house. all that banks care about, after all, is how likely you are to default, and how they can make the most profit. sure, they have stricter requirements now about proving your income than they did before the 2008 housing crisis, but their business model is the same. they’re in it to make money off of you, pure and simple. so instead of letting them set your budget, calculate for yourself what you want to pay for your house. if early retirement is a possibility, consider strongly going with a 15-year mortgage, which will raise your monthly payments, but let you pay off the house a lot faster. then don’t just think about how much rent or mortgage you can afford each month — think about all of your goals. how much would you like to be able to invest each month to support your retirement? how much other debt do you have to pay off? what other costs will come with a home in that area? if you’re in a two-income household, do you want to be sure you can pay for your home on one person’s salary if you should have to, to hedge against job losses? factor all of that in, and set your own budget.

I was pleased to find that Miss D. and I had followed most of the advice offered when we purchased our home in Texas. We bought within our means; bought a house big enough, but not too large, the upkeep of which we can manage between us; took out a 15-year mortgage, rather than a 30-year, in order to pay it off faster (and we hope to pay it off inside ten years, God willing, by making sacrifices in other areas); and we weren't stampeded by questions of status or appearances. I think it's worked well for us, at least so far.

I would also suggest, when considering a house for purchase, strongly considering utility of space - what space does the house have, how is it configured and how may it be used? For example, I've always wanted an oversize 4-car garage with an attached 2-bedroom house because my utility of space involves automotive and carpentry hobbies. I've seen any number of large, seemingly impressive houses that, in my estimation, would be a hemorrhoid to live in because of how they're laid out.

As George Carlin once said, "a house is just a box to keep your stuff in."

While I grew up in the 60s and 70s, the inflation of the Carter years followed by the recessions of the early 80s made 1975-85 my "economic formative years". I bought a smaller house than we could afford (to the banks) specifically because one of us could make the payments should my wife or I get laid off from our jobs.

33 years later, a major addition and dozens of smaller upgrades later, I'm still living here. Paid it off a decade early.

There is great peace of mind in not being in over your head, but there's no peace of mind like not having monthly payments.

We followed most (not all) of it - we did upgrade once (to get to an area with better schools). Since we live in an area that's expensive, even for California, we still paid more than we'd have preferred, but we did our best to pay things down, and refinanced to a lower interest rate (and lower payment, even though a shorter term) when we had a chance.

We have a pretty decent income, but it's gone to retirement savings, paying off the house, and our kids' education rather than status symbols. The closer we get to retirement age, the more I feel we made the right call - we've got a comfortable one-story house in a decent neighborhood that's almost paid off, and respectable retirement savings. While the friends that bought the big houses worry about loosing them if they're out of work for a few months, and know that they'll need to sell them and move when & if they ever retire.

This doesn't mean you shouldn't buy nice, expensive, things - but it really helps if it's a choice of something you actually enjoy rather than something you're buying to impress your friends and neighbors.

I'm far from as extreme as the early-retirement advocates like Mr Money Mustache (http://www.mrmoneymustache.com) but its amazing how much of the average families spending goes to things they don't really care about all that much.

Firearms Web sites I recommend

Statcounter

Google Analytics

Favorite Web Cartoons

Obligatory Disclosure

This blog is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.